China’s economy may be stuck in neutral for months by mandated quarantines and business shutdowns as well as resistance from local authorities to issue work resumption permits, according to an American risk analyst based in Shanghai.

Kent Kedl, a partner with Control Risks, a global risk consultant group specializing in global risk analysis in Greater China and North Asia, and an expert on U.S.-China relations, says many offices in Shanghai are shut in the wake of the coronavirus outbreak. Factories in the region are open, but most are operating with skeleton staffs. The streets of China’s largest city are mostly empty, he said.

“In crisis planning, you always have a plan for supply chain resiliency,” he said. “Usually, the worst-case scenario is losing a critical supplier. No one has ever thought you need a plan for a national supply chain going down.”

While the country’s leaders in Beijing are pushing for factories to fully reopen, local authorities—whose necks are on the line should the virus spread under their watch—are much more reluctant to issue the necessary permits, he said.

“People are nervous. They are self-quarantined. Shanghai is a ghost town. It’s really weird.” 

Kent Kedl, Partner, Control Risks

“Most factories are open, some people are there, but are they producing anything?” Kedl asked.

In order to reopen, factories need to obtain a work resumption permit from the local government. Obtaining the permit requires the company to have all employees pass a health screening process, have supplies like masks and sanitizer in place, and hit a number of other benchmarks.

Vicky Yu, quality & compliance manager for Asia Quality Focus, a Shenzen-based quality control service provider for local and foreign companies, advised companies “to set up local team or leader to lead the compliance and preparation of work resumption.” The leaders should keep employees informed at each stage of the process, she said.

Remote Access

 

With China in the grip of a coronavirus outbreak causing major disruptions to daily life and commerce, many employees are working remotely.

 

And while businesses have had more time than usual to react to this “slow-developing catastrophe,” it does not mean they should cut corners on data privacy protection, said James Green, director of Risk Advisory Services at SAI Global. “We’ve been telling our clients they should plan for a long disruption” to their business because of quarantines and forced business shutdowns, he said.

 

It is wise to have as many employees work remotely as possible, Green said. But remote work brings its own share of compliance risks, he said, because employees may be forced to access sensitive company data over unsecured networks.

 

“Ideally, you want employees to gain access to a company’s network only through secure channels,” he said. Companies should try, as much as possible, to keep in compliance with their own internal policies for protecting data, as well as the laws of the country they work in.

 

“You don’t want to create a second problem,” he said.

 

Four out of five data breaches in 2019 were caused by hacking or unauthorized access, according to a report released in January by the Identity Theft Resource Center. Accessing sensitive company data from an unsecured network can open a pathway for both of these methods. Employee error, accidental web exposure, physical theft, and insider theft caused the remaining data breaches, the ITRC said.

 

—Aaron Nicodemus

As a result of the government restrictions, most white-collar workers are working remotely, Kedl said. A few offices are open in shifts, with only a fraction of the workers arriving on any given day. Local authorities take the temperature of all employees when they arrive at work and when they leave, Yu said.

More new cases outside China

The coronavirus outbreak in China, which began in late 2019, has infected more than 80,000 people worldwide and has killed nearly 3,000, according to the New York Times. Wednesday marked the first time more new cases were reported to the World Health Organization from outside China than from inside, the newspaper reported. More than 40 countries have reported coronavirus infections, including, for the first time, a country in South America: Brazil.

As a result, companies are seeking to protect their employees.

Nestlé SA, the giant Swiss food and beverage company, announced Wednesday it will ban all business travel by its 29,100 employees until March 15, to avoid contracting or spreading the coronavirus.

“Nestlé shares global concerns over the spread and impact on public health of coronavirus (2019-nCoV). We take our responsibility for our employees and to the communities in which we operate seriously and continue to follow the advice of public health organizations,” the company said in a statement. “As a precaution, we have asked all of our employees worldwide not to travel for business purposes until March 15, 2020. We will review this measure in light of external developments.”

In January, several multinational companies banned or limited employee travel to China. Kraft Heinz, JP Morgan Chase, Ford Motor Co., Hershey, Apple, and others suspended business trips to China, according to the Wall Street Journal. Some companies have since expanded bans to other hard-hit countries like South Korea and Italy.

Even if an employee travels to China, he or she must self-quarantine for 14 days, Kedl said. “It really puts a crimp on a company’s ability to move employees around,” he said.

Kedl, who has lived in China since 1994, said the coronavirus outbreak is more serious than any other flu epidemic China has faced.

“People are nervous. They are self-quarantined. Shanghai is a ghost town. It’s really weird,” he said. He was excited to see a traffic jam outside his apartment the other day—but it quickly cleared, “and it was back to the zombie apocalypse.”

Aaron Nicodemus covers regulatory policy and compliance trends for Compliance Week. He previously worked as a reporter for Bloomberg Law and as business editor at the Telegram & Gazette in Worcester, Mass.

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